Sony's PS3 poised to grab limelight this year

By Jennifer Tan and Kiyoshi Takenaka

SINGAPORE/TOKYO (Reuters) - If 2006 was the year of the Xbox 360 and 2007 was the year of the Wii, 2008 is shaping up to be PlayStation 3's turn in the spotlight, as it stokes demand in the $19 billion computer gaming industry with some hotly awaited game titles.

Nintendo Co Ltd's Wii outsold Sony Corp's more expensive PS3 console 4-to-1 in Japan this month, but the PS3's maiden victory over the Wii last November showed that under the right conditions, the tables could turn.

Exclusive PS3 titles like puzzle-solving, community-based game "LittleBigPlanet", production improvements that will give Sony room to cut prices, and the recent victory of its Blu-ray technology in the high-definition DVD format war, should drive demand for the games console.

"2008 will be a turning year for the PS3," said iSuppli analyst Pamela Tufegdzic. "Sony is offering a better forthcoming software pipeline with blockbuster titles like "Gran Turismo 5", which will boost PS3 sales this year."

The Japanese electronics conglomerate ruled the global video game industry for a decade from the mid-1990s with PlayStation and PlayStation 2 -- both of which sold more than 100 million units -- but was a year behind Microsoft Corp in releasing its latest console.

The PS3 has also been hampered by its higher price and a lack of must-have game titles.

"We anticipate Sony will have another price slash on the PS3 this year, and come Christmas, consumers who originally bought the Wii will likely purchase the PS3," Tufegdzic said.

"The battle over consoles ultimately boils down to price."

Sony cut U.S. prices for its PS3 in November to $400-$500, compared with $250 for the Wii, and $280-$450 for the Xbox.

The company loses money on each PS3 it sells. Each machine offers the Blu-ray optical disc player and the "Cell" microprocessor that provides life-like graphics for hardcore gamers, driving up production costs.

But Sony expects manufacturing costs to fall below selling prices in the second half of next fiscal year, as it boosts production efficiency and component prices fall. This will give it flexibility to cut prices without incurring hefty losses.

Its game division is set to post an operating loss of more than 100 billion yen ($925 million) in the year to end-March, but aims to return to profit in the year to March 2009.

"The year of the PlayStation 3 started in fall 2007, I think it will be an extended year, we are feeling positive momentum," Scott Steinberg, vice president of product marketing for Sony Computer Entertainment America, told Reuters.

BLU-RAY BOOST

Meanwhile, at $400, the PS3 is the cheapest Blu-ray machine available, and may see spill-over demand from DVD player buyers.